Nubank Delivers Robust Growth and Record Margins
Post Q2 2024 Earnings Thoughts
Nubank’s latest earnings showcase impressive growth and resilience, despite macroeconomic challenges. Although the Brazilian Real depreciated over 10% against the USD this quarter, adding some noise to the reported figures, the company demonstrated robust fundamentals across key metrics. Deposit growth, a vital indicator of Nubank’s ability to fund its credit portfolio, showed resilience. While Brazil’s deposits grew only 20% year-over-year, the quarter-over-quarter growth in local currency terms accelerated to 10%, recovering from flat growth in the previous period. This uptick dispels concerns about potential market saturation and underscores the strength of Nubank’s deposit base, which not only fuels its lending business but also enhances customer loyalty and supports more sophisticated, data-driven credit underwriting through machine learning.
The company’s deposit strategy in Mexico continued to gain traction, albeit at a higher cost. The cost of deposits rose to 87% of the interbank rate from 80% a year ago, driven by aggressive expansion efforts in the Mexican market. Nonetheless, this investment in growth is poised to pay dividends as the company solidifies its presence across multiple geographies.
Credit origination surged nearly 80% year-over-year, a testament to Nubank’s successful underwriting approach. While growth in secured lending moderated to 5% quarter-over-quarter following a remarkable 70% increase in the previous period, the company anticipates a sharp rebound, with upcoming feature launches expected to drive over 25% q/q growth in the second half of the year. Risk-adjusted net interest margin (NIM) also continued to expand, reaching a new high of 11%, reflecting better-than-expected performance in early delinquency rates.
Revenue growth remains a standout, exceeding 60% and positioning Nubank as one of the fastest-growing companies at this scale with a run-rate surpassing $10 billion. This growth was fueled by a 25% rise in active customers and a 30% increase in average revenue per user (ARPU), complemented by a 45% expansion in interest-earning assets and a 1.5 percentage point increase in NIM, from 19% to 20.5%. The combination of rising customer activity and efficient capital deployment showcases Nubank’s ability to translate growth into sustained profitability.
Margin recovery this quarter further bolsters the company’s outlook. While the market was initially concerned about the margin dip in Q1 due to higher provisions, the latest results confirm it was merely a seasonal effect. With an efficiency ratio reaching a record low of 32%, and an all-time high EBT margin of 25% alongside a 17% net margin, Nubank demonstrated its capacity for both growth and cost management. On track to deliver $2 billion in net income for 2024, Nubank’s current valuation at 35 times price-to-earnings appears reasonable, considering its extraordinary growth trajectory and favorable prospects for the coming years.
Nubank’s quarterly performance not only highlights its growth potential but also reinforces its status as a leading fintech player capable of navigating macroeconomic headwinds while continuously enhancing its financial metrics.